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Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation

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Author Info

  • Marie Olivier
  • Vall Castello Judit

    (METEOR)

Abstract

We analyze the employment effect of a law that provides for a 36 percent increase in thegenerosity of disability insurance (DI) for claimants who are, as a result of their lack of skillsand of the labour market conditions they face, deemed unlikely to find a job. The selectionprocess for treatment is therefore conditional on having a low probability of employment, makingevaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase isonly available to individuals aged 55 or older, estimating its impact using a regressiondiscontinuity approach. Our first results indicate a large drop in employment for disabledindividuals who receive the increase in the benefit. Testing for the linearity of covariatesaround the eligibility age threshold reveals that the age at which individuals start claiming DIis not continuous: the benefit increase appears to accelerate the entry rate of individuals aged55 or over. We obtain new estimates excluding this group of claimants, and find that the policydecreases the employment probability by 8 percent. We conclude that the observed DI generosityelasticity of 0.22 on labour market participation is mostly due to income effects since benefitreceipt is not work contingent in the system studied.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 050.

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Date of creation: 2011
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Handle: RePEc:unm:umamet:2011050

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Postal: P.O. Box 616, 6200 MD Maastricht
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Web page: http://www.maastrichtuniversity.nl/
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Keywords: labour organization;

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References

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  1. David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, vol. 97(2), pages 119-124, May.
  2. John Bound & Julie Berry Cullen & Austin Nichols & Lucie Schmidt, 2002. "The Welfare Implications of Increasing Disability Insurance Benefit Generosity," Department of Economics Working Papers 2002-02, Department of Economics, Williams College.
  3. Richard Blundell & Monica Costa Dias, 2008. "Alternative approaches to evaluation in empirical microeconomics," CeMMAP working papers CWP26/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Nicola Duell & Shruti Singh & Peter Tergeist, 2009. "Activation Policies in Norway," OECD Social, Employment and Migration Working Papers 78, OECD Publishing.
  5. Rafael Lalive & Jean-Philippe Wuellrich & Josef Zweimüller, 2009. "Do Financial Incentives for Firms Promote Employment of Disabled Workers? A Regression Discontinuity Approach," NRN working papers 2009-11, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  6. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  7. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Working Papers 13039, National Bureau of Economic Research, Inc.
  8. David H. Autor & Mark G. Duggan & David S. Lyle, 2011. "Battle Scars? The Puzzling Decline in Employment and Rise in Disability Receipt among Vietnam Era Veterans," American Economic Review, American Economic Association, vol. 101(3), pages 339-44, May.
  9. Sergi Jiménez Martín & Judit Vall Castello, 2009. "Business Cycle Effects on Labour Force Transitions for Older People in Spain," Working Papers 2009-25, FEDEA.
  10. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
  11. Joshua Angrist & Stacey Chen & Brigham Frandsen, 2009. "Did Vietnam Veterans Get Sicker in the 1990s? The Complicated Effects of Military Service on Self-Reported Health," Working Papers 09-19, Center for Economic Studies, U.S. Census Bureau.
  12. Guido Imbens & Karthik Kalyanaraman, 2009. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," NBER Working Papers 14726, National Bureau of Economic Research, Inc.
  13. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
  14. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1223-1235.
  15. Boyle, Melissa A. & Lahey, Joanna N., 2010. "Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 467-478, August.
  16. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
  17. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
  18. Bell, David & Heitmueller, Axel, 2009. "The Disability Discrimination Act in the UK: Helping or hindering employment among the disabled?," Journal of Health Economics, Elsevier, vol. 28(2), pages 465-480, March.
  19. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-29, December.
  20. Richard V. Burkhauser & Mary C. Daly & Philip R. de Jong, 2008. "Curing the Dutch Disease: Lessons for United States Disability Policy," Working Papers wp188, University of Michigan, Michigan Retirement Research Center.
  21. David Autor & Mark Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," NBER Working Papers 12436, National Bureau of Economic Research, Inc.
  22. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
  23. Judit Vall Castello, 2010. "Promoting Employment of Disabled Women in Spain; Evaluating a Policy," Working Papers 2010-10, FEDEA.
  24. Humer, Brigitte & Wuellrich, Jean-Philippe & Zweimüller, Josef, 2007. "Integrating Severely Disabled Individuals into the Labour Market: The Austrian Case," IZA Discussion Papers 2649, Institute for the Study of Labor (IZA).
  25. Ours, J.C. van, 2006. "Leaving "Hotel California": How Incentives Affect Flows of Benefit Recipients in the Netherlands," Discussion Paper 2006-116, Tilburg University, Center for Economic Research.
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Citations

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Cited by:
  1. Silva, José I. & Vall-Castello, Judit, 2012. "Evaluating the Impact of a Reduction in the Generosity of Disability Benefits: The 2008 Spanish Reform," IZA Discussion Papers 6482, Institute for the Study of Labor (IZA).
  2. Silva, José I. & Vall-Castello, Judit, 2012. "Why Are So Many Disabled Individuals Not Working in Spain? A Job Search Approach," IZA Discussion Papers 6317, Institute for the Study of Labor (IZA).
  3. Cueto, Begona & Miguel Á., Malo, 2014. "Do partial disability pensions close the earnings gap?," MPRA Paper 55920, University Library of Munich, Germany.

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